What Do High Growth Businesses Do Differently?

Over the past 5 years the importance of the “High Growth Business” and how this relatively small group of businesses disproportionally impacts our economy, has become widely recognised.  Firstly, let’s just clarify what we mean by a High Growth Business. The generally accepted definition is a business that is growing at a minimum of 20% per annum with a turnover of at least £500,000. 

The now defunct, Government supported GrowthAccelerator service, recognised the importance of this group and provided financial support to stimulate further growth through business advice and leadership & management training. 

Despite its importance, there is very little empirical evidence on what businesses do that is likely to make them a candidate for high growth and how they maintain a high growth state.

However, a report published in the USA by Hinge Marketing as recently as February this year, at last, gives us some empirical insight into the workings of these businesses. It looks only at service businesses, but the results are from a sample of over 500 firms.

I don’t propose to give a blow by blow account of the report but rather pick out some of the more interesting findings. There is a link at the end of this article for those who want to read the report in full detail.

One of the most surprising findings was that High Growth Businesses were 45% more profitable than their no growth counterparts. Put another way, High Growth Businesses in this sample had an average profitability of 19.9% compared to 13.7% for No Growth Businesses. 

This finding seems to defy gravity as conventional thinking tends to suggest that in the high growth phase, businesses substitute top line growth (turnover) for bottom line growth (profit). The report itself doesn’t analyse why but having thought about it a bit, I’ve a couple of suggestions. 

Firstly, High Growth Businesses tend to be better run. In order to sustain high growth, the leadership team needs to have a detailed understanding of how different aspects of the business interact. That tends to mean that they are more efficient as a business including delivery and managing creditors. On the other hand, I know from personal experience that many High Growth Businesses can also be rather chaotically run and certainly aren’t then efficient.

Secondly, could be the adoption of technology. By employing technology appropriately, you can substitute new recruits for capital investment. This means that you can reduce the level of recruitment for any given level of growth. In my experience it is the need to recruit, and recruit heavily, that impacts profitability because it often takes several months for new starters to add value to the business. 

I don’t have a clear answer as yet but do hope it’s something that is followed up in a later survey.

The survey also looked at how firms differentiated themselves: this also generated some startling differences.

In response to the question “What are your five most favoured differentiators?”

High Growth Businesses listed;

Our marketing/ business development approach

Our culture

Our business model

Our use of technology

The quality of our people

No Growth Businesses listed;

Our commitment to results

Where we are located

Awards we’ve received

Our reputation

The specialised services we offer

What is blindingly obvious is that these two groups focus on completely different things and if you wish to embrace high growth there may need to be some significant shifts in your way of thinking.

Let’s now turn our attention to how the two groups approach marketing. The survey uses the idea of Total Marketing Effort, which represents an approximation of the sum of explicit marketing costs and implicit costs such as time or diversion of expertise. The rationale behind this is that no marketing is free because marketing time often competes with billable time.

In respect of total marketing effort, High Growth Businesses investment are slightly less than No Growth Businesses at 55.7% to 58.8% respectively. This may also be somewhat of a surprise as I suspect many would expect High Growth Businesses to be spending a lot more on Marketing. 

Logically then in order for this to be true, High Growth Businesses must have much more effective marketing. I think this goes back to a point I raised earlier that because they have a much better understanding of their business they get more “bang for their buck” out of each pound of investment than their No Growth counterparts.

What is more, High Growth Businesses invest their spend very differently. High Growth Businesses spend much more on digital marketing. Comparing these two groups again, High Growth Businesses only spend 40% of their marketing effort on traditional marketing compared to over 50% by No Growth Businesses. By contrast, High Growth Businesses are much more heavily invested in digital marketing, where they spend 60% of their effort. 

Also, as you might expect because they are more rigorous in measure relevant metrics than traditional businesses. Typically High Growth Businesses monitor at least 4 separate metrics where No Growth Businesses monitor just over 3. This might be for two reasons, firstly, digital marketing is easier to track, therefore building reliable metrics is simpler. Secondly, though perhaps a more circular argument, is that they run their business more effectively which means they’d rather spend their marketing investment where they can monitor its performance which would bias them towards digital marketing.

So what are the takeaways from this survey?

If you want to have a successful High Growth Business, then you need to take a holistic approach and look at how your business can best deliver what you are selling. The idea that culture and people can be a compelling differentiator at the strategic level might be a surprise. However, if you look at many of the highly successful businesses of the recent past, these two components have been key attributes to their success.

Marketing isn’t just about spend, it’s also about finding the right techniques to use. Currently digital marking is delivering a better ROI, however, that might just be because traditional marketing is harder to measure, not that it’s less effective.

We are a specialist High Growth consultancy. Using our Seven Steps programme we can help you set your business for long term High Growth. For further information please go here 

This article was originally published on BusinessZone.co.uk

For a full copy of this survey go to Hinge Marketing

Time To Review Your Value Proposition.

We can at last say with some confidence that we are seeing some "green shoots of recovery". Recent figures have indicated an acceleration in growth and this points towards a more buoyant economy. Let's not get carried away as we are still operating at levels below the pre 2008 crash. Nevertheless, the supply side of the economy is optimistic that interest in its products and services and hopefully sales will increase next year, as potential  buyers at last dip into their cash hoardings and start investing in their businesses.

A direct consequence of this improvement in sentiment is that many companies will gear up their sales machines in anticipation of improved demand. Collectively that means increased competition for sales.

Also, as buyers start to loosen the purse strings, their years in a very tight market will have changed their perceptions of what is important to them and their expectations of their suppliers and their solutions. This means that your product or service may no longer fit the market as well as it once did. As a result the value you bring to your market may be reduced resulting in a poorer take up of your services and offering your competitors a chance to get ahead.

Identifying your Unique Value Proposition (Photo credit: Intern. Forum Of Visual Practitioners ifvp.org)

New entrants into the market will also be seeking ways to differentiate their product to better reflect buyers changing needs. All these pressures should lead you to the conclusion that you need to review your value. More explicitly you should be reconsidering your value proposition and testing its relevance to a changing market.

Your Value Proposition

Your value proposition is a short statement which explains to your target audience what problem you solve and why they should buy it from you instead of your competition. What is different about your solution or offering compared to your competition. It is sometimes called an elevator pitch or positioning statement. However you want to describe it, now is the time to give it a review.

It's easy to become a little blasé about your value proposition after all you know and love your product. Your target market doesn't have the same attachment and will go after what they want and will not hesitate to ignore you if you no longer meet their needs.

I remember listening to an interview with Jack Nicklaus where he said every year at the beginning of the golf season he would go to his coach and go through the basics of his grip, his stance and his swing in minute detail to make sure that he hadn't picked up any bad habits that might affect his future performance.  Taking that analogy forward we should regularly review our value proposition to ensure its relevance.

Your Value Proposition Components

Lets just remind ourselves what should be included in our value proposition.

What is our target market? Has this changed? Is our market bigger or smaller than before?

What is the current problem we are solving for our target market? Is it an important consideration for customers in our market? For those of you who don’t have a formal value proposition, start with the biggest issue customers have with your industry and see if you address this. If your product or solution is less important to your market than previously, then you’ll have a tough time selling it.

What are we offering? Is it a new product or service? Can we explain it easily?

What is different about our solution? At this point many people talk about a unique selling point. For most businesses finding something that is unique is almost impossible. What you want to isolate is what you do differently or what additional capability you have, that will make them buy from you rather than your competition.

Which brings me to the last point what alternatives are there to what you offer? Why is your offering superior to the competitions? What is the Return on Investment from adopting your solution?

By asking yourselves these questions you should get a good understanding of changes in the market and how that might affect your value proposition. You may be affected by such things as changes in legislation, new products entering the market or your industry being more interested in other problems. Unless you answer these questions, you may well find your value proposition increasingly irrelevant at a time when your target market will be more active than it has been for years.

Exigent Consulting provides specialist services to the Small and Medium Business including Managing High Growth, Business Turnaround, and Mentoring. We help business owners improve the profit performance of their business. 

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Culture - Getting the One You Want

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This short article will give you practical steps to identify the culture you have now and the culture you would like to have to support you as a high growth business.  We have talked earlier about the importance of a strong company culture in a high growth business and how it should be a critical part of your business strategy as it can provide real competitive advantage.

Whilst many owners in high growth businesses understand the need for a strong company culture, their business have developed without any clear focus on this aspect. There is a need therefore for a simple process to identify he differences between the culture you have now to the culture you want, and identify how to go from one to the other.

It is worth repeating that if you run a business you will have a culture. You get this by default, your company culture will be created by your values and the values of your employees. Those with the strongest personality or who are the most vocal will tend to create a dominant culture. To enable you as an owner of high growth businesses to grow faster for longer getting the right culture is a must.

Step 1 Find out what you have now. 

The simplest way to do this is for you to identify the 3 to five words which you think together describe your company culture, so for example; honesty, reliability, easy to do business with, supportive, positive.

Step 2 Find out if your staff agree

Produce a list of maybe 15 to 20 words and include you 5 initial words in that list. Ask your staff to highlight 5 words which they think best describes the company culture. By the way make sure the response to this survey is anonymous otherwise you'll have staff telling what they think you want to hear, rather than what they really think.

Step 3 Analyse the results

You are most likely to get one of three results

(a) there is a lot of similarity between your view of your company culture and that of your staff

(b) there doesn't seem to be any prevailing view of your culture amongst your employees. This suggests what ever your culture is, it is weak.

(c) your employees have a completely different view of your company's culture from you.

Step 4 Identify the culture you want

Using the same technique as in step 1. Find a few keywords that will identify your new culture.

Step 5 Create culture champions

As a busy owner of a high growth business you don't have either the time or the capability on your own to change your staffs attitudes. You will need the help of other key members of the team to become "cultural champions" to keep reinforcing the new cultural message. 

Step 6 Implement your new culture

Encourage and support your cultural champions to work with your staff to implement those changes into you company culture. Where are you most likely to be successful? Recruitment is great starting point as you can filter out those potential staff who like and agree with your culture. As I have stated before this is especially important in a high growth business as new recruits become productive faster.

This last step may take some time depending on how different it its from your current culture. Don't let that put you off as evidence has shown that a high growth business with a strong supportive culture will grow faster and for longer than a business which has not.

Exigent Consulting provides specialist services for High Growth Business , Business Turnaround, and Mentoring to the Small and Medium Business. We help business owners improve the profit performance of their business. 

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